Discussion:Investor in unrelated Startup Business Tax Treatment
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Discussion Forum Index --> Advanced Tax Questions --> Investor in unrelated Startup Business Tax Treatment
Discussion Forum Index --> Tax Questions --> Investor in unrelated Startup Business Tax Treatment
Donniecastleman (talk|edits) said: | 15 December 2007 |
| Hi, say someone invests, as simply an investor, or contributes money to get someone's pizza shop, music career, racing career started in the amount of $50K. What would most likely be their tax treatment of their 50K investment over the next few years if the business was profitable? I can see this could be treated as a partnership in some ways as there would be an initial investment and an agreement to pay 50% of profits as recoupment of investment plus profit, but is there any other options that I should know? Instead of writing a novel on this a reference to where investor tax situations are would be fine. | |
| 15 December 2007 | |
| Depends on the agreement between the parties. Note - its a loan. Stock- equity investment set-up a partnership then partner, etc, etc | |
Taxalmancer (talk|edits) said: | 15 December 2007 |
| If you structure yourself as an equity "investor" you better be sure to have a well-written partnership/shareholder agreement that spells out what happens down the line, when, how and what happens if it doesn't.
I've seen to many loosey-goosey arrangements between "partners" where the money person got the short end of the stick. | |
Death&Taxes (talk|edits) said: | 15 December 2007 |
| Seems to me if you are going to put money into a start-up, you should have some say in entity choice. And there are choices to make that are critical. If the venture goes under, a loan would be a non-business bad debt whereas a stock loss might be Section 1244, but then if your friend is successful, you might have income on a K-1. | |
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